For our schedule and links to other discussions, see the Money and Banking 2024 master post.
This is the discussion thread for Economics of Money and Banking Warsaw Lecture 2: History of Money and Finance?

• Lecture Video

This lecture provides historical context for how people have thought about money and banking over time, and, in particular, how the Money View approach evolved. This material is largely absent from the original 2012 lectures, but the historical context can give us an intellectual starting point to build on.
NOTE 1: As with Warsaw Lecture 1, the audio in this lecture only plays over the left channel. I recommend downmixing to mono in your computer's audio settings, so it doesn't distract you.
NOTE 2: The recording doesn't start until a few minutes in, toward the end of Slide 2.
The slides are not always visible in the recording. I've included their content below.

Slide 2: Two traditions (0:00 – 0:18)

“There were, at the least, two strands in classical economics. There was one (represented, roughly speaking, by Ricardo and his followers) which maintained that all would be well if by some device credit money could be made to behave like metallic money; there was another (represented, so far as I have taken the story, by Thornton and Mill) which held that credit money must be managed, even though (as was admitted) it is difficult to manage it. This is a major difference, and it has outlasted Keynes.” Hicks 1967, “Monetary Theory and History”

Slide 3: Drivers (0:18 – 5:18)

• World Wars, World Depression, Rise of Welfare State, Stabilization Policy
• Rise of the United States (1913 Fed, 1944 Bretton Woods), from sterling to dollar reserve
• Professionalization of Economics, Formal Turn in Economics, Econometric Movement
• De-colonization, Independence, Financial Crisis
• Emerging Markets, Financial Globalization, Global Financial Crisis

Slide 4: The Money View (5:18 – 6:41)

• Banking as a Payments System
  • Copeland (1952): A Moneyflow Economy
  • Minsky (1957): The Survival Constraint
• Banking as a Market Making System
  • Hawtrey (1919): Hierarchy of Money and Credit
  • Hicks (1989): Centrality of the Dealer Function
  • Bagehot (1873): Dealer of Last Resort

Slide 5: The Economics/Finance View (6:41 – 8:12)

• MV=PT, money as means of exchange
• IS-LM (nominal interest rate), money as store of value
• Purchasing Power Parity, P=sP* (FX), money as measure of value
• DSGE with Taylor Rule (inflation targeting)

Slide 6: Finance and Macroeconomics (8:12 – 10:36)

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Finance: “consumption CAPM” Economics: “Real Business Cycles”

Slide 7: Fatal Abstractions (10:36 – 13:06)

• No “Banking as a Payment System”
  • No Money Flow, NIPA
  • No Survival Constraint, Budget Constraint
• No “Banking as a Market-Making System”
  • No Hierarchy, Money as n+1th market
  • No Dealers, Price equilibrates, supply and demand
  • No Dealer of Last Resort, Central Bank operates on inflation expectations

Slide 8: Monetary Thought, 1913 (13:06 – 18:15)

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Slide 9: Political Thought, 1913 (18:15 – 21:53)

• Three Bogeymen
  • Big Finance Memory of 1907 Crisis (JP Morgan)
    • And 1910 (Jekyll Island)
  • Big Government Memory of 1862 (Greenbacks)
  • Big Wide World Actuality of Sterling System
• Political Solution
  • Real Bills Language (vs. Finance and Government)
  • Gold Convertibility (vs. Wide World)
  • Board of Governors, democratic oversight
• Funding Liquidity vs. Market Liquidity

Slide 10: Language vs. Reality (21:53 – 26:21)

• Funding liquidity versus market liquidity
  • Real bills doctrine, self-liquidating bills
  • Shiftability doctrine, Moulton 1918
    • Primitive repo, Primitive shadow banking!
• Wartime transformation
  • Centrality of government debt (Bogey #2)
  • Centrality of government debt dealers (Bogey #1)
• Tenth Annual Report (1923)
  • Invention of open market operations

Slide 11: Great Depression Transformation (26:21 – 28:21)

• Federal Reserve failure
  • 1931 lender of last resort but not dealer of last resort (funding liquidity, not market liquidity)
• Federal Reserve transformation
  • Banking Act of 1935, “apotheosis of shiftability”
  • Banking Act of 1937, “orderly conditions” tantamount to dealer of last resort, essential hybridity

Slide 12: Emerging Norms of Management (28:21 – 33:53)

• Keynes 1930 Treatise, normal backwardation
  • Keynes 1936 GT, liquidity preference
  • Hicks 1939, V&C, forward rate bias
• Wartime hiatus, and more transformation
  • From war finance to Bretton Woods 1944 (Bogey #3)
  • From war finance to Fed-Treasury Accord 1951
• FOMC “Report of the Ad Hoc Subcommittee on the Government Securities Market” (1952)
  • Level of interest rates
  • “Tone” of the money market, centrality of private dealers

Slide 13: Capital Finance, indirect (33:53 – 36:04)

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Slide 14: International Dollar, indirect (36:04 – 37:16)

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Slide 15: Origins of Macroeconomics? (37:16 – 38:28)

• Alvin Hansen
  • Continental Business Cycles (Schumpeter) + American Institutionalism (Burns/Mitchell)
• John Maynard Keynes
  • English Banking Traditions (Tooke, Bagehot, Marshall, Hawtrey)
• James Tobin: neoclassical synthesis
  • Irving Fisher (Walrasianism) + Cambridge Quantity equation

Slide 16: Evolution of Macro? (38:28 – 40:11)

• Internal Inconsistency, Monetarist Challenge
  • Phelps (1968), Friedman (1968), Muth (1961)
• New Classical Theory (Lucas 1975, 1976, 1977)
  • “Equilibrium Model of the Business Cycle”
  • “Econometric Policy Evaluation”
  • “Understanding Business Cycles”
• Real Business Cycles
  • Kydland and Prescott (1982)
  • Long and Plosser (1983)

Slide 17: The Lucas Link: Macro vs. Finance (40:11 – 42:52)

“On the one hand, it is easy to postulate agents and market institutions which ignore or foolishly waste information: the result is a theory which seriously understates agents’ abilities to vary their decision rules with changes in the environment (such as, for example, the theory underlying the major econometric forecasting models). It is equally easy to postulate ‘efficient’ securities markets which rapidly transmit all information to all traders: the result is a static general equilibrium model. To observe that one must avoid both extremes to understand the business cycle does not take one very far in discovering the correct ‘centrist’ model, but it seems nonetheless an essential point of departure.” (Lucas 1975, 1138).

Slide 18: Rise of the Academics (42:52 – 46:34)

https://preview.redd.it/6m93v5496j0d1.png?width=600&format=png&auto=webp&s=1b7fdfc7c92458d2db765ce4404c1fff51f142c4

Slide 19: Modigliani (46:34 – 47:22)

• “Liquidity Preference and the Theory of Interest and Money” (1944)

https://preview.redd.it/74sbv1496j0d1.png?width=500&format=png&auto=webp&s=b2f822f2cbd0020c8ab13421f5cac0d92ee02fd0

Slide 20: Samuelson (1947 [1937]) (47:22 – 50:04)

• Robertson’s Money (1922)
• Monetary Walrasianism
  • Hicks 1935 “A suggestion for simplifying…”
  • Marschak 1938 “Money and the theory of assets”
• M = M(p1,….,pn,pm,I,r)
  • Monetary theory of the rate of interest? NO
  • Liquidity preference theory of term structure? NO
• Neoclassical Synthesis (1955, 1967)

Slide 21: An Aside on Hicks (50:04 – 51:20)

• Repudiation of 1937 “Keynes and the Classics”, but not 1935 “Simplifying”
• 1962 Presidential Address “Liquidity” restarts his monetary inquiry, culminating in 1989 Market Theory of Money
• Not monetary Walrasianism, rather completion of Keynes Treatise on Money
• Hicks and the money view

Slide 22: Emerging Norms of Management (51:20 – 53:09)

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Slide 23: State of Debate circa 1975 (53:09 – 55:12)

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Slide 24: Can Monetary Policy Work? (55:12 – 56:52)

“If the interest rate on money, as well as the rates on all other financial assets, were flexible and endogenous, then ….there would be no room for monetary policy to affect aggregate demand.” Tobin (1969, 26)

Slide 25: Monetarism Mark I (56:52 – 57:14)

• “One can see why the initial monetarist tide was so successful – no one had thought of building any dykes.”
  • Hahn on neoclassical “synthesis” (1983, 51) in Paul Samuelson and Modern Economic Theory

Slide 26: The "Hahn Problem" (57:14 – 58:15)

https://preview.redd.it/8jcfp2496j0d1.png?width=800&format=png&auto=webp&s=73cc39b78482d8e1428eed53e2efe2dee13b5ddb

Slide 27: The Problem of Time (58:15 – 1:00:25)

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Slide 28: Rise of Finance (1:00:25 – 1:01:00)

• CAPM Origins [Marschak 1938]
  • Markowitz (1956) to Sharpe (1964)
  • Modigliani-Miller (1958) to Treynor (1962)
• Options Pricing Origins
  • Treynor to Black-Scholes (1973)
  • Samuelson to Merton (1973)

Slide 29: "Monetarism" Mark II (1:01:00 – 1:01:35)

• Black (1970) “Banking in a World Without Money”
• Real Business Cycles
  • Kydland and Prescott (1982)
  • Long and Plosser (1983)
• Dynamic Stochastic General Equilibrium Model
  • No banks, no money, liquidity as a free good
  • Price level formed by “expectations” and Central Bank Taylor Rule

Slide 30: Risk control in efficient markets (1:01:35 – 1:03:17)

https://preview.redd.it/5sywj2496j0d1.png?width=750&format=png&auto=webp&s=a688cb774c8e87ed709b29f2f4c9d9f5cf3b0437

Slide 31: Special Theories of "Liquidity" (1:03:17 – 1:04:18)

https://preview.redd.it/2bjav2496j0d1.png?width=850&format=png&auto=webp&s=cfaca1cd483baa49a8e19856fb18a11ad6406089

Slide 32: The Problem of time, Redux (1:04:18 – 1:05:05)

https://preview.redd.it/kfc033496j0d1.png?width=750&format=png&auto=webp&s=0899df4bf3463ed5cb26d8954890fcd9c9d1eb2f

Slide 33: The Money View (1:05:05 – 1:05:10)

• Banking as a Payments System
  • Copeland (1952): A Moneyflow Economy
  • Minsky (1957): The Survival Constraint
• Banking as a Market Making System
  • Hawtrey (1919): Hierarchy of Money and Credit
  • Hicks (1989): Centrality of the Dealer Function
  • Bagehot (1873): Dealer of Last Resort

Slide 34: "Capitalism is essentially a financial system" (1967) (1:05:10 – 1:05:31)

https://preview.redd.it/purce3496j0d1.png?width=480&format=png&auto=webp&s=4ec53b8c3d1560cf7fff9077ae264bc45671e0ef

Slide 35: The Vision of Minsky (1999) (1:05:31 – 1:08:12)

“By his own reckoning, Minsky was an institutionalist economist in the sense that he viewed the structure of the economic world not as immanent in some set of underlying data—such as endowments, technology, and preferences—but rather as constituted by a set of key economic institutions. He was institutionalist too in his insistence that our economy is essentially, not incidentally, monetary in character. His way of fleshing out that idea was to look at every economic unit—firms, households, governments, even countries—as though it were a bank daily balancing cash inflow against cash outflow. From that point of view, the categories that most economists, and most people, take to be solid simply melt into air. Production, consumption, and trade, are nothing more than flows of money in and out and between different economic units. The most real thing is money, but money is nothing more than a form of debt, which is to say a commitment to pay money at some time in the future. The whole system is therefore fundamentally circular and self-referential. There is nothing underneath, as it were, holding it up. In Minsky’s hyper-modern institutionalism, institutions do not merely organize the stuff of some pre-existing real world; there are the only real world there is. Financial relationships are not about mediating something else on the ‘real’ side of the economy; they are the constitutive relationships of the whole system. The veil of money is the very fabric of the modern economy.”

Please post any questions and comments below. We will have a one-hour live discussion of Warsaw Lecture 2 on Wednesday, May 13th, at 2:00pm EDT.

Did you know that 60% of businesses, regardless of company size, underestimate the true expenses of customer support solutions, including response times and user issues? When it comes to Supportbench Pricing, transparency is key. Let's delve into the intricacies of pricing structures, uncovering hidden fees and understanding the value proposition. In this guide, we break down the factors that impact pricing, ensuring you make informed decisions for your business.
Useful Links:

1. SupportBench LifeTime Deal
2. SupportBench Free Trial

Key Takeaways

• Understand Supportbench Pricing: Familiarize yourself with the pricing structure of Supportbench to make informed decisions on selecting the right plan for your needs.
• Benefit from a Scalable Pricing Model: Take advantage of the flexibility and cost-effectiveness of Supportbench's scalable pricing model to align with your business growth.
• Compare Help Desk Software Costs: Evaluate the costs of different help desk software options, including Supportbench, to ensure you are getting the best value for your investment.
• Choose Supportbench for Your Needs: Consider the unique features and benefits of Supportbench to see how it aligns with your specific requirements for efficient customer support for end users.
• Transition Smoothly to Supportbench: Manage and execute a seamless transition to Supportbench by leveraging their resources and support for a successful implementation, ensuring satisfaction for customers, end users, and pros.
• Make Informed Decisions: Use the information provided in the article to make well-informed decisions regarding support software pricing and selection.

Understanding Supportbench Pricing

1. Professional Plan: Ideal for Mid-Sized Teams

The Professional plan is designed for mid-sized teams looking to streamline their customer support operations without breaking the bank. Priced at $32 per agent per month, this plan offers a comprehensive suite of features to enhance productivity and efficiency. Here's what you can expect:

1. Powerful Email Editor: Create visually stunning and informative emails with ease using SupportBench's intuitive email editor.
2. Sentiment Analysis: Gain valuable insights into customer sentiments and tailor your responses accordingly to foster positive interactions.
3. Real-time Notifications: Stay updated on customer queries and support tickets in real-time, ensuring prompt responses and resolutions.
4. Customer Health Scoring: Evaluate the health of your customer relationships with built-in scoring metrics, enabling proactive support and retention efforts.
5. At-risk Dashboards: Identify customers at risk of churn and take proactive measures to address their concerns and retain their loyalty.
6. Reporting Engine: Access comprehensive reports and analytics to track key support metrics and make data-driven decisions.
7. KPI Scorecards: Monitor key performance indicators (KPIs) and track progress towards your support goals with customizable scorecards.
8. Salesforce Integration: Seamlessly integrate SupportBench with Salesforce to sync customer data and streamline workflows across platforms.
9. Calendaring: Schedule appointments, follow-ups, and support sessions directly within SupportBench for efficient time management.
10. NPS and CES: Measure customer satisfaction and loyalty with Net Promoter Score (NPS) and Customer Effort Score (CES) surveys built into the platform.
11. Survey Engine: Gather valuable feedback from customers through customizable surveys to continuously improve your support services.

With its extensive feature set and affordable pricing, the Professional plan is an excellent choice for businesses looking to elevate their customer support capabilities.
https://preview.redd.it/o58um49umd0d1.png?width=873&format=png&auto=webp&s=7a5f0353c34f19b90c09eb37fd70c941963817ce

2. Enterprise Plan: Tailored for Large Teams

For larger teams with more complex support requirements, the Enterprise plan offers a comprehensive solution packed with advanced features and personalized support. Priced at $125 per agent per month, this plan provides everything included in the Professional plan, plus additional enterprise-grade functionalities. Here's what sets the Enterprise plan apart:

1. White Labeling: Customize the appearance and branding of your support portal to align with your company's brand identity and aesthetics.
2. Advanced Permissions: Granular control over user access and permissions, ensuring data security and compliance with regulatory requirements.
3. Enterprise API: Access SupportBench's API for seamless integration with other enterprise systems and custom application development.
4. Unlimited Custom Roles: Create and manage an unlimited number of custom user roles to match your organization's unique structure and hierarchy.
5. Default Personal Views: Personalize the support dashboard with default views tailored to individual user roles and preferences.
6. MSA & HIPAA Available: Compliance with industry standards such as Master Service Agreements (MSA) and Health Insurance Portability and Accountability Act (HIPAA) for sensitive data handling.
7. Single Sign-On (SSO): Simplify user authentication and access management with single sign-on capabilities, enhancing security and user experience.
8. Live Onboarding Training: Receive personalized onboarding sessions and training from SupportBench experts to ensure a smooth transition and optimal utilization of the platform.
9. Dedicated Success Manager: Access dedicated support from a success manager who understands your business goals and provides tailored assistance and guidance.
10. Access to Managed Services: Leverage SupportBench's managed services for additional support and assistance with platform customization, integration, and optimization.

With its enterprise-grade features and personalized support offerings, the Enterprise plan is the ideal choice for businesses with large-scale support operations and complex requirements.
Useful Links:

1. SupportBench LifeTime Deal
2. SupportBench Free Trial

Choosing the Right Plan for Your Business

When evaluating SupportBench's pricing plans, consider factors such as the size of your team, your budgetary constraints, and the specific features and functionalities that align with your business objectives. Conduct a thorough analysis of your current support workflow and future growth projections to determine which plan best meets your needs.
Whether you opt for the Professional plan for its affordability and comprehensive feature set or the Enterprise plan for its advanced capabilities and personalized support, rest assured that SupportBench has you covered with a robust platform designed to enhance your customer support experience.

Comparing Help Desk Software Costs

Competitive Pricing

Supportbench's pricing stands out when compared to many software providers like Freshdesk and Zendesk. The company offers affordable plans that cater to businesses of all sizes, ensuring value for money.
Supportbench's pricing model emphasizes the importance of providing cost-effective solutions for businesses seeking a reliable customer management system. This approach enables companies to access essential features without breaking the bank.

Features vs. Cost

When evaluating Supportbench against its competitors, it becomes evident that the platform strikes a balance between competitive pricing and feature-rich offerings. Unlike some alternatives, Supportbench ensures that affordability does not equate to a lack of functionalities.

• Pros:
  • Affordable pricing plans suitable for various business budgets.
  • Value-driven packages that include essential help desk features.
• Cons:
  • Limited customization options compared to premium-priced competitors.
  • Higher-tier plans might be required for advanced functionality.

Why Choose Supportbench

Customer Reviews

Customer reviews for Supportbench consistently highlight its standout features, with many praising the AI Predictive CES functionality. Users appreciate the accuracy and efficiency this feature brings to their support processes.

User Experiences

Users who have switched to Supportbench from other platforms often share positive experiences. They note a significant improvement in workflow efficiency, streamlined communication, and enhanced overall customer satisfaction.

Customization and Automation

Supportbench stands out for its extensive customization options, allowing businesses to tailor the platform to their specific needs. The automation capabilities streamline repetitive tasks, saving time and increasing productivity.

Improved Analytics

One of the key advantages of Supportbench is its advanced analytics tools. Users can gain valuable insights into customer behavior, trends, and performance metrics, enabling data-driven decision-making and continuous improvement.

Transitioning to Supportbench

Benefits

Transitioning to Supportbench from other help desk software like Desk.com or Zendesk offers a range of benefits. With Supportbench, your support team can streamline their processes on a single platform, enhancing efficiency and productivity. The platform provides robust reporting tools for better insights into user issues, allowing for more proactive service.

Smoother Customer Support

The transition to Supportbench ensures a smoother customer support experience. By centralizing all tools and resources on one platform, the platform simplifies workflows and improves the overall quality of service provided to end users. This results in higher levels of customer satisfaction and success.

Seamless Integration

An advantage of transitioning to Supportbench is the seamless integration of chatbots using ChatGPT. By leveraging advanced AI technology, chatbots can effectively assist support teams in addressing client queries promptly. This integration enhances the efficiency of customer service systems and teams, providing quicker resolutions to clients' issues.

Summary

In understanding Supportbench pricing, you've learned about the benefits of a scalable pricing model and how it compares to other help desk software costs. Choosing Supportbench means embracing a solution tailored to your needs, ensuring a seamless transition that enhances your support processes. With Supportbench, you get not just a tool but a partner in elevating your customer service experience.
Make the smart move today by transitioning to Supportbench and revolutionizing your support operations. Your customers deserve top-notch service, and Supportbench is here to help you deliver just that. Take the leap towards improved efficiency, enhanced customer satisfaction, and streamlined workflows with Supportbench at your side.
Ready to revolutionize your support process? Dive into Supportbench's free trial and see the difference 🎉

Frequently Asked Questions

How is Supportbench Pricing structured?

Supportbench offers a transparent and scalable pricing model based on the number of users or agents utilizing the software. This allows businesses to pay only for what they need, whether they are a small team or a large enterprise.

What are the benefits of Supportbench's Scalable Pricing Model?

The scalable pricing model of Supportbench ensures that businesses can easily adjust their subscription based on their needs. This flexibility allows companies to scale up or down without being locked into fixed plans, saving costs in the long run.

How does Supportbench's Pricing compare to other Help Desk Software Costs?

Supportbench provides competitive pricing compared to other help desk software providers in the market. By offering a range of features at affordable rates, businesses can enjoy cost-effective solutions without compromising on quality and functionality.

Why should I choose Supportbench for my business?

Choosing Supportbench means gaining access to a robust help desk software that prioritizes user experience and efficiency. With customizable features, seamless integration options, and excellent customer support, Supportbench stands out as a reliable solution for businesses of all sizes.

What should I consider when transitioning to Supportbench from another platform?

When transitioning to Supportbench, consider factors such as data migration, training requirements, and integration with existing systems. The Supportbench team offers assistance throughout the transition process to ensure a smooth switch without disruptions to your business operations.
Useful Links:

1. SupportBench LifeTime Deal
2. SupportBench Free Trial

The kitchen is on fire. Welcome to the final part of the Vapiano story where the tables are turning. In the first two episodes we followed Mark Korzilius' journey from setbacks to founding Vapiano, a groundbreaking restaurant concept, highlighting its fresh ingredients, dynamic atmosphere, and data-driven operations that drove rapid success. While achieving initial profitability and garnering attention from industry giants like McDonald's, Vapiano's global expansion has led to stellar revenue growth. However, it has also resulted in the emergence of numerous side projects (or distractions), operational challenges, increased costs, significant investments, and a notable accumulation of debt. This underscores the prioritization of top-line growth over profitable growth. We will continue on this thread and see how the story ends, but I would encourage you to read part one and two for better context. Vapiano P1: Italian Food Made in Germany (substack.com). Let's dig in.
Before Going Public
We are now in 2015 and the year is a disaster for Vapiano's PR department. Employee time stamps are being manipulated, endless overtime for employees and high turnover in managerial roles are reported; mice in the kitchen and even rotten food allegedly found.
The company is confronted with allegations of exceeding working hours among trainees in an article published by Welt am Sonntag, while the same outlet accuses Vapiano of manipulating punch times. The auditing firm PwC is commissioned to investigate the allegations and finds that there is no systematic approach but rather misconduct by individual employees, a mistake that’s being corrected. Internal however, investigations into stamp times are carried out regularly now and beyond its obvious reputational impact, this sucks up valuable management time and attention.
In the summer of 2015 CEO, co-founder and investor Gregor Gerlach, who has been running the group since 2011 is stepping down and Jochen Halfmann is taking over. A new Vapiano People Program with an App is being developed with the aim to better interact with customers that will incorporate innovate features such as mobile pay. The German website sees a launch of new magazine to further promote the brand and there is now a full inhouse blogger and Instagram team being installed. In October the company buys seven restaurants from original co-founder, former co-investor and ex-president previously responsible for internation expansion Kent Hahne (2x Bonn, 3x Cologne, 1x Koblenz and one in Cologne that’s under construction). This package of Vapiano restaurants is very successful and generates net sales of more than 20 million euros in 2014. Hahne opened his first Vapiano restaurant in Cologne in August 2006 and in 2015 with his company apeiron AG, Hahne operates six L'Osteria franchise restaurants, a direct Vapiano competitor, and two self-owned restaurants GinYuu.
Then in November of 2015, the next public relations bomb goes off with allegations regarding the company's quality standards. The company immediately investigates the issue through internal and external specialists but finds no evidence of any quality issues. Nevertheless, knowing that the group is now being closely watched, the company’s already in place hygiene standards are being reinforced. Additional audits and inspections are performed nationally. Further, all Vapianos worldwide are being audited twice by the partners SGS Institut Fresenius and SAI Global. Auditing software is purchased to simplify the implementation of the audits and the resulting measures. Apart from the external examinations, there is a food sampling plan in place being performed continuously. Again, all of this sucks up costs, management time and attention. With all these tumultuous developments the company’s growth engine is undeterred. Revenue grows by a whopping 50 million euros to 202 million euros, an increase of 33%. Impressive. While average spent per customer increases in all countries, the number of customers per day in Germany decreases by 3.3% partially due to the negative press towards the end of the year. Five own, four JV and 19 new franchise restaurants are added that year to the group, the total number of own managed restaurants grows to 51, there are 31 JVs and 84 franchises which bringing the total to 166 Vapiano restaurants. Global restaurant sales are now above 400 million euros.
But while revenue grows by an astronomical 50 million euros, operating profits, alarmingly, shrink again. Gross margins are staying perfectly healthy above 75% but operating costs keep growing disproportionately fast. The Company’s outstanding debt jumps by almost 30 million, close to 85 million euros by the end of the year. With operating profits at 9.5 million euros, alarm bells should be going off right now.
In Q4 of 2015, new CEO Jochen Halfmann introduces Strategy 2020. The new strategy includes five essential points. One, profitable growth in the newly defined core markets of Germany and Austria as well as in the UK, Netherlands, France and USA. Two, operational excellence through strict “best practice” management. Three, further development and digitalization of the concept considering guest feedback. Four, greater focus on long-term employee retention and five, building a modern and sustainable IT landscape. Sound’s good on paper but let’s see how things pan out.
Vapiano's investments (capital expenditures) that year are primarily directed towards new restaurant openings, renovations of existing establishments, and share acquisitions in other Vapiano restaurants from franchisees or JV partners. A significant portion of funds is allocated to the digitalization of the guest experience, including the development of a new app scheduled for market release in 2016 and the implementation of a time recording system across all group restaurants. The world's first standalone Vapiano restaurant with a delivery service that year is built in Fürth, Germany. The company keeps expanding its presence in both inner-city locations and international markets, such as Shanghai, China.
To finance all of this, the group has its own operating cash flow which comes in at 18 million while capital expenditures are 26 million euros plus 14 million for acquisitions. The funding gab is filled with 26 million euros of new debt and a seven-million-euro equity raise. At that end of the year and after the equity raise Gregor Gerlach (through his AP Leipzig GmbH & Co. KG entity) holds 30.1%, Hans-Joachim and Gisa Sander through their Exchange Bio GmbH hold 25.5% and the Tchibo heirs, Herz through their Mayfair Beteiligungsfonds II GmbH & Co. KG hold 44,4%.
But for the first time the restaurant’s concept that was so successful to date is being questioned. Some customers are starting to mislike the operational flow of the concept itself. If you want pasta, you must queue for pasta. If you want pizza you stand in a different queue. A small side salad, yet another queue. "You spend more time carrying trays than an actress in Berlin-Mitte. The audience in the pasta limbo can only consist of people who have worked for an insurance company for a long time and, like Stockholm syndrome, they can no longer get away from the industrial canteen feeling," writes TV host Beisenherz provocatively. While overly harsh in his assessment he's not entirely wrong judging by customers venting their frustrations in forums and social media channels. It isn’t uncommon for those who ordered pizza to have already finished eating while there is little movement in the pasta queue. Long term that doesn't go down well, QSRs competitors like L’Osteria are handling this process differently, with much success.
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Tipping Point

Where are now in the year 2016 and things start to deteriorate visibility. Perhaps not for the leman’s eye but any business minded observer can see that there are problems under the hood. Yes, revenue grows yet another whopping 50 million to almost 250 million euros but half of that growth, comes from acquisitions of restaurants that the group didn’t already own 100%, which is now being fully consolidated within the group’s accounts. Here is a concrete example. In the past, Vapiano SE, the group’s top holding company held an indirect 50% stake in a French subgroup via the subsidiary VAP Restaurants SA, based in Luxembourg, and included this as an associated company in the Vapiano SE consolidated financial statements using the equity method. Due to the acquisition of additional shares in September of 2016, Vapiano SE's indirect share in the French subgroup increased to 75%. This means that Vapiano SE takes control of the French subgroup, which is therefore included in the group’s financial statements as part of the full consolidation. The revenue from the acquired subsidiary now recorded in the consolidated income statement amounts to 12.8 million euros. While that’s great for the top line, the loss of the fully consolidated entity equates to 0.2 million euros. Yes, you are buying revenue, but there are losses attached to them, not profits. A similar case is the Swedish entity that runs eight restaurants with revenue of 11.5 million euros but has losses of 235 thousand euros. So much for Strategy 2020 and “profitable” growth.
That year the group’s operating profits are absolutely tanking, halving to 3.5 million euros. Operating profits are now a mere 1,4% of revenue. Remember original founder Mark Korzilius who talked about operating margins of 25% to 28% at the restaurant level? Yes, there are overhead costs for the organization that sits above the chain of restaurants, but operating margins that low indicates a course correction is needed. What’s telling is that in the annual report, in the management discussion section, the company starts talking about EBITDA as a proxy measure of profitability, rather than operating profit or net income. This wasn’t the case in the years before. Is this window dressing for an upcoming IPO? EBITDA is short for earnings before interest, tax, depreciation, and amortization. How can you measure profitability of a restaurant chain that absolutely and unequivocally needs capital investment to maintain its restaurant operations, the very source of cash generation, by simply excluding this maintenance charge (depreciation in the income statement)? Vapiano’s own annual report talks about the fact that existing restaurants must be rejuvenated from time to time and that new interior designs have to be implemented every few years. These things wear and tear, they go out of style, kitchen equipment breaks and needs replacement. This business absolutely needs maintenance capital expenditure, why anyone talks of profits before these maintenance costs is beyond me. Fun fact: in the previous annual report EBITDA is mentioned seven times, mostly around restaurant acquisitions and financing, not however as a profit indication for the group. In the new annual report, EBITDA is mentioned 28 times. Maybe it’s just me but belated Charlie Munger liked to call EBITDA: bullsh*t earnings. When in doubt I stick with Charlie. Interestingly, EBITDA for Vapiano keeps growing while operating and net profits keep falling.
Operating cashflow for the group that year is about 21 million euros, but capital expenditure is 30 million and acquisitions for subsidiaries another 20 million. To finance these expenditures another 28 million euros of debt and 16 million of equity is raised. Net debt rises above 130 million euro. The operating cashflow of the group before any capital expenditures is 21 million euros. I am not sure free cash flow would be significantly positive after maintenance capex is paid out; it’s not broken out so we can’t be sure. Granted, I am not on the ground during this time, and I am not in the board room, I am simply reading what’s in front of me, but to me this is starting to look like a distressed situation. Regardless, the following year the company goes public.

IPO

Where are now in the year 2017 and its Vapiano’s first year as public company. The company’s annual report reads the following “Sales revenue, like-for-like growth (LfL) and the earnings figures EBITDA and adjusted EBITDA are used as the most important financial performance indicators for controlling operational business activities.” The very same report however also says: “The majority of the group's investments regularly go towards opening new restaurant locations and modernizing existing restaurants. The latter are differentiated into regular replacement investments that occur during ongoing operations (Maintenance CAPEX) and fundamental investments in the renovation of a restaurant (Remodeling CAPEX). On average, a restaurant remodeling takes place nine years after opening.” It says it right there in their own report; every nine years a remodeling is taking place. Remodeling and updating is not cost free, so why exclude depreciation charges which reflect capital expenditures? I understand that perhaps you would want to strip out one-off opening costs, that’s fine and fair, but don’t go overboard.
The number of restaurants increases by 26 (previous year: 13) to a total of 205. The increase consists of 27 new openings and one closure. Group revenue grows to an astonishing 325 million euros but here comes the shocker, operating profits turn negative to 25 million. Fine, strip out foreign exchange losses of 3 million, IPO costs of 5.8 million and new opening costs of 6.1 million and you still have 10 million euros of operational losses. All the while the debt load of almost 130 million hasn’t materially changed, so those operating losses are before a six-million-euro interest payment. 184 million euros are raised through the IPO of which 85 million go to the company. This money is earmarked for further expansion as the group has ambitions to almost double the footprint to 330 restaurants by the end of 2020. The company is currently not profitable on an operating basis, and still wants to expand aggressively? I don’t get it. The remaining 100 million euros of the IPO money raised is distributed to co-founder Gregor Gerlach and Wella heirs Hans-Joachim and Gisa Sander. The family office of the former Tchibo owners Günter and Daniela Herz with a 44% stake, don’t sell a single share. After the IPO, 32% of all the company’s shares are now in free float.
One year later, in 2018, things get even worse. Revenue grows to 371 million, but operating losses mount to 85 million euros, that’s before interest expenses of 9 million. Even the beloved EBITDA figure turns negative, meaning the operating business before any expansionary or even maintenance capital expenditures is loss making. All regions are experiencing significant deterioration in their earnings profiles. Like for like sales are down 1% across the board. That’s revenue, not profitability. The question naturally arises: is the Group approaching its natural saturation point here or this operational by nature? The operating cash flow is now 9 million while financing cost are close to 7 million. That leaves 2 million for maintenance capital for 74 own restaurants and 76 joint ventures ones. Describing this as financially tight, would be an understatement.
Things are not looking good at this point. Yet the company still grows restaurants by 26 new sites. 64 million euros are spent on acquisitions, new openings, and maintenance costs, financed through a 20 million-euro equity raise and 72 million of new debt. The Company now has net debt outstanding of over 160 million euros. After the equity raise and by the end of the year 2018, Mayfair owns 47.4%, VAP Leipzig, Gregor Gerlach’s entity owns 18.9% and the Sander couple own 15.5% of the company. Yes, the Sanders and Gerlach may have taken 100 million euros off the table, but they still have substantial skin in the game. Plus, Mayfair hasn’t sold a single share and instead injects more money into the company through the equity round. The stock has now fallen from its IPO price of 23 euros per share to under 6 euros by the end of 2018. Something must be done here. And indeed, there is pivot in strategy and a hard push for change. At last, the management team abandons its aggressive growth plan and curtails new openings significantly. Additionally, the team wants to run a thorough analysis of weak locations to then either discontinue or sell sites. In Europe, the operating focus will be put on corporate restaurants and joint ventures in major cities to ensure the ideal size and location to match the respective demographic target group. Outside of Europe, the franchising business is being expanded and at the same time a consolidation of the existing corporate and joint venture markets is being sought. All future investments will be reviewed to achieve higher rates of returns on new openings. Investments are also being made in the renovation of older restaurants. The goal in the future is to also open smaller formats, like Mini-Vapianos (less than 400 square meters) or Freestander at prominent transportation hubs outside city centers (currently in Fürth and Toulouse) to cater to individual location requirements, and to enter new partnerships. I am not sure why management hasn’t stopped all expansion altogether, bringing the ship in order first, getting profitable, clean up, all hands-on deck before considering any further expansions whatsoever. But again, it’s easy to comment from the sidelines; maybe they saw white spaces that would be covered by competing concepts if they weren’t moving fast and aggressively enough. Although pushing internationally means competing with local players such as Jamie's Italian, Prezzo, Pizza Express, Wagamama, Nando's and many more which brings in its own dynamic.
Management also aims to enhance guest satisfaction. This involves refining operational processes, reorganizing the support center, and refocusing on the core offering: providing fresh and high-quality Italian food at affordable prices for a broad audience. The group also aims to reduce waiting times, especially during lunch, while also improving the evening atmosphere. There is even what I would call an evolution, away from Vapiano’s original concept, reorientating the customer journey. The ordering flow is being changed, offering guests synchronized preparations of all dishes while eliminating wait times at the cooking stations. The open show kitchen remains, staying true to original mantra of freshness and transparency but now guests can choose their preferred method of ordering through a mobile app, using a digital order point (kiosk), or by personally placing an order with a waiter. Guests can still freely choose their table and are then informed about the complete preparation of their order through a pager or their smartphone. This is a substantial deviation from the original concept, but a needed one. The group is also exploring and implementing the expansion of take-away and home delivery services but only at suitable locations, not universally across new openings. I am not sure why home delivery is even a priority here; it adds operational complexity. It’s better to clean up shop first and get back to the basics before adding new complexities. To be fair management does try to simplify. There are 49 different permanent dishes on the menu and additional 10 seasonal ones. Customers can choose from eleven different types of pasta. There is simply too much choice, and it makes orders complicated. The company announced to slim the menu down to its most popular and typical Vapiano dishes. There’s no need for an Asian salad at an Italian restaurant. "We have to go back to the roots, i.e. classic, honest Italian cuisine" says COO Everke. Regardless, in November of 2018, the supervisory board pulls the plug on CEO Jochen Halfmann and replaces him with Cornelius Everke. Everke himself has just become COO five months ago. Since 2017 he was responsible for international expansion. From 2011 to 2017 that role was filled by Mario Bauer – put a pin in that name, he’ll play a key role in the groups fate later. Then nine months later, in the middle of 2019, Cornelius Everke quits. He essentially concludes that his skillset and experience in the areas of internation expansion is no longer needed in the foreseeable future. To put it differently: Vapiano has moved from a growth story and has become a restructuring case, and other skills are required for that job. In June of 2019 Everke says the following “(we’ve) made a bit of a mistake when it came to foreign expansion”. No sh#t. Vapiano postpones the presentation of the 2018 annual financial statements three times in the spring of 2019, citing negotiations over an urgently needed loan of 30 million euros. It’s not until the end of May that a binding loan commitment comes through from the financing banks and major shareholders.
We are now in August of 2019 and the corona pandemic is just around the corner. Supervisory board chief Vanessa Hall takes over as interim-CEO and things are unravelling. Visitor numbers are declining; originally, it was planned to sell the US business but halfway through the year the buyer cannot come up with the money. But not all restaurants are performing poorly. The group's poor figures contrast starkly as an example with the experiences of the Swiss-German franchisee, who runs six restaurants. The Sodano family in Switzerland pays Vapiano a royalty of 6% of sales for the use of the brand. Enrico Sodano explains in an interview that they operate largely autonomously from the licensor. If an “accident” were to occur, he could immediately replace the Vapiano sign with Sodano, he says. The family concluded the rents and contracts with employees and suppliers independently. The Sodano family have six locations in Bern, Basel and Zurich, around one million guests every year and 350 employees. Things are going well on the ground. The delivery service they’ve built is offering them a second income stream. Expansion into Winterthur, St. Gallen and Lucerne are being planned; small locations with 150 to 250 square meters and an attached delivery service. Originally, Vapiano restaurants used to be huge but for such a large restaurant to be profitable, 800 to 1,000 guests per day are needed. That’s possible in medium-sized cities, but not in smaller towns which is why the Vapiano group now also supports smaller formats. Back to our corporate drama. The 2019 annual report would be the last report the group files. By the end 2019 the outstanding debt of the company is at an astronomical 450 million euros. Revenue has grown by another 7%, produced by four net new openings through two JVs and two franchise restaurants but operating losses come in at 317 million euros. That sound like an absolute shocker at first but depreciation and amortization charges are 345 million, so that operating cash flow is actually positive but unfortunately capital expenditures and interest payments are so large that they are eating up all of the company’s operating cash flow. Then in the beginning of 2020 Corona hits with full force and the world shuts down. As a result of the measures to prevent further spreading of the virus, the group is forced to cease all global business operations (except in Sweden). While all these shutdowns are happening, the group is the middle of negotiating with its lending banks and main shareholders. There are additional financing needs for restructuring measures, even without a pandemic happening in the background. The situation is so dire that the company starts pleading to the German government to roll out the package of financial help more quickly. Unfortunately, it’s to no end. The rapid closure of restaurants and the resulting lack of operating cash inflows in conjunction with the additional financing requirements, lead to the company’s final knockout punch. In April of 2020, the Vapiano group officially files for insolvency proceedings. The end of an era.

New Beginnings

Because of the pandemic, the majority of the group's subsidiaries in Austria, the Netherlands, Denmark, the United States, Sweden, and China also file for insolvency or seek liquidation. The US business never gets sold in the end and is wound down. In the summer of 2020, significant group divestments occur, including the sale of 75% shares in the group's French subsidiaries, shares in franchisor companies, Australian subsidiaries, German subsidiaries, associated companies, self-managed restaurants in Germany, and insolvency-related sales in the Netherlands, Great Britain, and Sweden. The buyer of the Vapiano brand and one of these bundles of Vapiano restaurants is company named Love & Food Restaurant Holding, a consortium led by Mario C. Bauer – a name I told you to remember. Bauer was a former Vapiano board member and led the national and international expansion, opening 200 sites in 33 countries from 2011 to 2017 until he was succeeded by Cornelius Everke. Bauer didn’t feel comfortable with the IPO at the time but clearly has a lot of managerial and entrepreneurial talent.
The buyer consortium is an absolute A-Team comprised of European QSR top league hitters, including the founder of the Pret A Manger chain Sinclair Beecham; Henry McGovern, the founder and Ex-CEO of the giant international restaurant and foodservice operator AmRest; the Van der Valk Family that runs hotels and Vapiano restaurants in the Netherlands, and co-founder and ex-CEO Gregor Gerlach. The acquisition value is 15 million euros and entails 30 Vapiano restaurants in Germany, albeit that’s just the purchase price which comes on top of any capital investment needed to refresh and return the sites to its former glory. Nevertheless, just as a thought experiment, if you can get each site to 2 million euros of revenue and 400,000 euros in operating profit on average, which wouldn’t be an overly aggressively assumption given the company’s history, you’ve got yourself a package that can deliver restaurant-level operating profits of 12 million euros or more. It’s not disclosed how much capex was needed to refresh the operations, just that fact that the overall investment plus purchase price was a middle double-digit million-euro figure. Stil, it probably was a decent purchase. The same consortium buys Vapiano’s French business for 25 million euros just two weeks prior. After the transaction concludes, the master franchise is given to Delf Neumann and his Gastro & Soul GmbH. Neumann is an experienced operator, and he is ambitious to revitalise the brand with new services and products. For example, instead of pizza, the restaurants will be serving pinsa - a flatbread made from sourdough, wheat and rice flour, topped similarly to a pizza. It targets a more health-oriented customer base looking for a less calory heavy option. The menu overall is expanded by including a variety of vegan and vegetarian dishes.
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Today Neumann’s Gastro & Soul GmbH operates 18 Vapianos on its own account and has 29 franchise sites, amongst other brands. By the year 2021, Vapiano operates 191 restaurants in 34 countries. This is around 50 fewer sites than before the bankruptcy. The number of branches is particularly thinned out in Germany – from 80 to 55. Nevertheless, Vapiano's home country remains by far the largest market, followed by France with 35 restaurants and Austria with 15 locations. “We have shrunk ourselves to health,” says Bauer in the aftermath and there is no further shrinking planned. Quite the opposite, the smell of expansion is in the air again – pun intended. Not as aggressively as before and with a new menu and ordering process.
Overall, the team around Bauer is filled with industry experts with knowledge and networks gained over decades who have a great track record, a long-term view, and the staying power to let Vapiano breath and finds its way back to success. The pressure of being a public company with all the associated quarterly, half-year and yearly disincentives have been removed. The menu is changed and extended with new types of pasta and sauces with significantly more vegetarian and vegan dishes available. Guests can order with restaurant staff, at terminals or on their phones and there are barcodes attached to the tables identify the respective seat. The food is brought to your table, all at the same time if you are in a group, no more annoyances with waiting in line. There is a plan for smaller, 350 square meter locations, with half the number of guests and significantly fewer staff and less set-up costs required to make the economics work. Locations that capitalize on remote work and increased demand for local lunch options, higher population density with shorter delivery routes and therefore cost-effective in house delivery services are targeted. And Bauer is testing the concept of ghost kitchens, which operate without a dining room or service staff, focusing solely on preparing food for delivery services, which for obvious reasons have a very different operational set up and footprint. Original founder Mark Korzilius however is not entirely convinced. He is not a fan of the pinsa for instance and he considers Vapiano's pizza as its cash cow, flagship product and believes that the core Vapiano proposition of Pizza, Pasta, Bar that has given the company its original success is being diluted. He instead admires the competitor L'Osteria, saying they’ve done a better job by focusing on Italian classics, especially the impressively large pizzas that sticks out beyond the plate is leaving every customer in awe. The guys who run L’Osteria are the same guys who have built Vapiano with him in the first place. Bauer on the other hand, like a true business leader, remains undeterred, stating that he is frequently asked whether Vapiano's restart was bold or foolish. He believes in entrepreneurship, franchising, in his experienced fellow partners and importantly the Vapiano concept. By the year 2024 you can find over 140 Vapiano branded restaurant in 27 countries across the globe, including locations far away from its birthplace like Australia, USA, Columbia, Chile, Bahrain, and Saudi Arabia. And why not? Italian food is, and will remain to be, incredibly popular. Vapiano offers fresh and tasty food at affordable prices in a good atmosphere. This combination of attributes should attract a lot of customers. It certainly has in the past.
For more stories: WIP Thomas Weitzendoerfer Substack